There is no shame in following successful investors, or also known as “coat tailing”. At least I have no shame, and even Warren Buffet recommends it as well. The trick of course is to distinguish the really talented from the maybe lucky ones, even if their luck lasted a few years. I spend a lot of time reading as much I can about money managers that qualify my value assessments and try to follow the reasoning and thinking of these managers, especially on their investment ideas. Sometimes I might agree solidly with them and follow them into an idea, sometimes not, but I always enjoy the opportunity to learn something new or to hear an alternative view to broaden my frame of reference for future analysis.
One of these managers is David Einhorn of Greenlight Capital which I have mentioned before and included a speech he made, titled “The curse of AAA”. A blog I enjoy reading for the quality of information they publish, Manual of Ideas , posted a David Einhorn page with a link to some of his speeches that I have not read before. I found this particular one very enjoyable, especially since the date it was given, October 19, 2007, was just at the start of this credit crises and few people seemed to grasp what was happening or did not want to hear or see the warning signs. I certainly wish I could have grasped the full extent of what went on at that date and not much later.
Especially revealing is the following quote,
“ The rating agencies have lost the ability to impose discipline on the balance sheet of the broker-dealers and the financial guarantee companies – the enablers of structured finance that bring so much business to the rating agencies. This creates an enormous systemic risk, as these entities are able to maintain access to cheap credit while overextending themselves beyond prudence. One day, taxpayers may have to pay, should government determine that an over-levered leader is too big to fail at the point it reaches the cusp of doing just that.”
Please read the speech patiently and thoroughly if you have the time, it is a very good read and gives a thorough explanation of why regulation failed and is bound to fail again at some point in the future. The value of doing your own due diligence should be obvious.